CAPITAL NOTE

Short-term unsecured debt generally issued by a company to pay short-term liabilities. Capital notes carry more risk than other types of secured corporate debt, because capital note holders have the lowest priority. The capital note often has a higher interest rate because it is unsecured.

The interest rate offered on a capital note is heavily dependent on the credit rating of the business, because it is all the investor has to rely on. Banks may issue capital notes in order to cover short-term financing issues, such as being able to meet minimum capital requirements. Capital notes are typically not callable.